Cotton turned to roses this week as the combination of trade talks, USDA’s WASDE report and an impending freeze in West Texas potentially have offered U.S. cotton to flow more freely into China, coupled with the probability that U.S. stocks may not be as burdensome as had been previously expected.
Going into the weekly close, the nearby December contract was up 221 points on the week – its third consecutive higher weekly close. Maybe an uptrend is in the works, that is, the market is experiencing a series of higher and higher lows. December traded to 64.00 and was on tap to establish its highest close in over a month.
Demand continues to be the fly in the price ointment, but the potential for a smaller world crop as suggested by the USDA October supply demand report could offset some of the price bearishness that has plagued the market all year.
The AgMarket Network group unanimously agreed that 66 cents, basis December, was a real possibility. Two members of the group indicated they could see December trade to 70 cents. For me, 70 cents is “A Bridge Too Far,” but I do hope they are correct.
The spoiler for me is that there is simply too much cotton in exporting countries to see a trade above 67 cents. Nevertheless, the 61-65 cent trading range is still the order of the day and must be breached before the bull can make his mark. Yet, the continued optimism of a partial settlement in the trade dispute is a significant reason to argue for higher prices.
In its October report, USDA lowered U.S. production 157,000 bales and lowered ending stocks from 7.2 million bales down to 7.0 million bales. The 2019 U.S. crop is now estimated at 21.7 million bales. The impending freeze in West Texas could take another 200,000 bales or more off the 1N and 1S crops – thus, the argument for yet a smaller U.S. crop. The freeze is some two to three weeks earlier than the normal first freeze.
Total world estimates were little changed from the September data, but certain country changes were notable. The Indian crop was increased one million bales, as expected, but decreases in the U.S., Brazil, Australia and Pakistan crops slightly offset the increase in India. However, world consumption, production and carryover were only marginally changed from the prior month. World production was estimated at 124.8 million bales, with world consumption at 121.6 million.
U.S weekly export sales continue a bit anemic. However, forward sales were significant enough that total commitments and shipments to date are slightly ahead of the 2018/19 pace. Too, recent weekly sales, while anemic as stated, came from a very wide array of countries, i.e., widespread – albeit light – demand for U.S. cotton.
The market must still battle through the bearish on-call purchases that signify the historically excessive volume of cotton that growers still must fix. This, coupled with questionable demand numbers, comprise the primary reason that I am skeptical of the market advancing beyond 66-67 cents. Too, the volume of cotton held in the world’s major exporting countries must be reduced before the 70-cent level can be breached.
Additionally, as stated last week, the market does not seem to want any part of the upper 50s again. The U.S. is well into its harvest, and the price lows should be in. Let’s go to 66 cents and take another look-see. Begin scale-up hedging at 65 cents plus.
Give a gift of cotton today.
Dr. O.A. Cleveland is professor emeritus, Agricultural Economics at Mississippi State University.
Πηγή: Cotton Grower